Many ASX growth shares have delivered knockout returns over the last year.
Tabled below are the three most ‘expensive’ or overvalued shares on the ASX, according to research house Morningstar.
| ASX Code | Share Price | Fair Value | Overvalued % |
| Afterpay Ltd (ASX: APT) | 114.65 | 53.153 | 116% |
| WiseTech Global (ASX: WTC) | 31.26 | 14.637 | 114% |
| Xero Limited (ASX: XRO) | 146.81 | 78.081 | 88% |
Perhaps unsurprisingly, all happen to be growth shares.
#1 – Afterpay Ltd (ASX: APT)
Leading Buy Now Pay Later provider Afterpay might be the most overvalued share on the ASX, according to Morningstar data. Afterpay shares have surged about 288% over the last 12 months.
Afterpay updated the market on its November growth figures earlier this month. Underlying sales for the group hit $2.1 billion, an increase of 112% from the prior year. Perhaps the most significant part of the update was that active customers in the United States increased by circa 1 million.
Morningstar expects Afterpay to generate earnings/profit of 79.2 cents per share by 2023. Therefore, Afterpay is trading on a price/earnings (P/E) ratio of 144x forecast FY2023 earnings.
Although the growth numbers Afterpay is reporting are outstanding, I think that much of the growth this already priced in. That said, I have been completely surprised about the rise and rise of the Afterpay share price.
#2 – WiseTech Global Ltd (ASX: WTC)
WiseTech is ranked as the second most overvalued company on the ASX according to Morningstar. The supply chain software provider is up around 28% over the last year.
WiseTech recently provided an update of how they are tracking in FY21 at their AGM. The company expects to continue on its growth trajectory in FY21, aided by the rollout of its CargoWise platform.
WiseTech believes it will achieve revenue growth of 9-19% in FY21 resulting in revenue of $470-$510 million. FY21 EBITDA is forecast to be in the range of $155-$180 million, representing growth of 22% to 42%.
Morningstar expects WiseTech will achieve earnings of 51.2 cents per share by 2023. If WiseTech meets this projection, its shares are now trading on a P/E ratio of 61x FY2023 earnings.
You can read my assessment of WiseTech shares here.
#3 – Xero Limited (ASX: XRO)
Accounting software business Xero is ranked as the third most overvalued company on the ASX by Morningstar. Xero shares have launched about 80% higher over the last 12 months.
Xero recently reported strong growth numbers in their HY21 report. Xero’s global subscriber base jumped 19% to 2.45 million. This supported growth in revenue of 21% to NZ$409.8 million and an 86% lift in EBITDA to NZ$120.8 million.
Morningstar believes Xero could deliver earnings of 110.8 cents per share in FY23. On this basis, Xero trades at an FY23 P/E of 132.5x.
Summary
Afterpay, WiseTech and Xero are undoubtedly some of the best growth companies on the ASX. However, they currently appear to be on the expensive side.
In contrast, Redbubble Ltd (ASX: RBL) and The a2 Milk Company Ltd (ASX: A2M) are 2 ASX growth shares I’m considering buying in December.
